Americans often borrow against the value of their homes. They get second mortgages to pay for higher education, home improvements, or starting small businesses.

But what if they couldn’t prove that they owned their homes? Lenders would be much less likely to loan. What if families couldn’t secure ownership rights at all, even if they’d lived there for generations?

That is the problem facing millions around the world.

America's past
In nineteenth-century America, land ownership was often difficult to establish. “The same acre might belong to one man who received it as part of a land grant from the British Crown, to another who claimed he bought it from an Indian tribe, and to a third who had accepted it in place of salary from a state legislature.”

It wasn’t until clear, legal, and strictly enforceable property rights were established that the growing prosperity of nineteenth and twentieth-century America was possible. With established ownership rights, settlers could borrow against the value of their land, investing to greatly increase their incomes.

The Third World today
Much like peasants under the feudal system in Europe, many impoverished peoples live and farm on land that belongs either to the government or to wealthier individuals. Those lucky enough to “own” their land often do so informally, without adequate documentation.

“Without title, ‘squatters’ must protect their residence from intruders and eviction. Someone stays home and defends the property instead of working in the labor market.” This is hardly the most effective use of capital.

Peruvian economist Hernando de Soto has written about this problem for years. His book, The Mystery of Capital, points out the tedious nature of obtaining title to land.

In the Philippines, for instance, de Soto reports it takes 168 steps to acquire title. This could take up to 25 years. He encourages land titling, which simply awards ownership rights to those who have occupied a piece of land for a certain amount of time. The concept was used successfully in nineteenth 19th century America. It leads to much more productive land use.

The benefits
If poor people gain title to their lands, they could borrow against the value of their homes and farms. Farmers could buy better equipment, fertilizers and pesticides. Crop yields would increase, bringing more income to the family. Legal private businesses would become more common, replacing the “black market” economies that exist all over the third world.

Higher incomes would also allow governments to tax their citizens at higher rates. This provides funds for better roads, irrigation, and other needed services.
 

The poor need more control of their own future to escape the “poverty trap.” One excellent way to help achieve this is through legal home ownership.

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